Comprehensive Exit
Plan Will Ease Business Transition
By Steven M. Bush
An “Exit
Plan” is a pro-active plan for successfully transferring your privately-held
business. Regardless of whether your personal and professional goals
include transferring your business to one or more family members, moving it
to one or more of your valued employees, or selling it to the highest
bidder, exit planning is the best method of putting into place the right
combination of tools and circumstances for success.
An exit
plan should anticipate the significant business, personal, financial, legal
and tax issues that may be involved in transferring your business. The plan
should address these issues with specific action items. The most useful
exit plans read like a “How To” book for accomplishing the owner’s
objectives.
An
important, and often overlooked, advantage of exit planning is a by-product
of simply going through the planning process. The process of planning for
your successful exit lets you, your family, and your close employees and
advisors become familiar with, and get comfortable with, the idea of life
after you leave the business.
Who Decides on the Exit Plan?
A good exit plan starts
with your values and desires. Your exit planner should start by helping you
define your values, objectives and desires. Are there special people to
whom you want to transfer or sell your business? Will you want to stay
involved in the business during and after you transfer or sell it? Do you
want to reward special people with the transfer or as a result of a
transfer? Are there any people that you may want to protect during the
transfer or after the transfer?
A good exit plan will help
maximize the value of your business - even if your desire is to transfer the
business to a member of your family. The planning process lets you avoid
under-valuing your business, and it helps you set realistic expectations
about what your company may be worth. Your advisors should help you focus
on the parts of your business that create and drive value, help you minimize
risks to your business and your plan, and present creative ideas to help you
achieve your goals.
The process of planning for
your desired exit should also include consideration of how the transaction,
whether it involves a sale to a third party, a sale to an employee or group
of employees, or a transfer to members of your family, will fit with your
other assets and plans for your estate. Your exit planning team should
include an estate planner and a financial planner to help in these areas.
These plans may include preserving family wealth for new generations,
diversifying assets, and transferring wealth to your family, to special
people, or to charities.
How
Does the Exit Planning Process Work?
An exit plan should include
some key components. A starting point in every exit plan is a valuation.
The valuation should be performed by a person or firm that is familiar with
your industry, with comparable businesses, with transactions within the
industry, and with market forces.
The plan should put in
writing your personal and financial goals. Your financial goals may include
a desired sales price, liquidity, tax minimization, wealth preservation and
estate planning. Your personal goals may include ownership and management
succession, legacy, reputation, employees, other stakeholders and your
special interests.
The plan should set forth
the time frame within which you will accomplish your goals. You should plan
for a lead time of two to five years to allow your business to demonstrate
consistent growth and long-term relationships with your customers, employees
and vendors.
Most successful plans
include sell-side due diligence during the implementation period.
Performing the due diligence before offering your business for sale or
transfer will allow you to identify the strengths and weaknesses of your
business with enough time to enhance the strengths and correct or minimize
the weaknesses.
You
Have a Default Exit Plan
The bottom line is that
every business owner has an exit plan – the default plan. The main
difference between your well thought-out exit plan and your default plan
lies in which plan will achieve the result you desire. It is never too
early to start planning for your exit from your business, even if you
commenced business only yesterday.
Steven M. Bush of the
Bush Law Firm has more than 20 years of legal, business and tax experience.
He also developed and sold the successful Mr. Handyman franchise. Steve can
be reached at 303-831-1411 or steve@bushlawpc.com.
